Morning Read: All-Time Transport and Smallcap Highs, But Japan Slumps

By Brendan Conway

Market check: The S&P 500 enters Friday with gains in 10 of the last 12 sessions. The cyclical stuff, meanwhile, is moving to fresh highs. The Russell 2000 index of small stocks posted another record close on Thursday — its 56th record of the year, according to Dow Jones Market Data Group. The Dow Jones Transportation Index, comprised of railroads, trucking companies, airlines and the like, also closed at a fresh record. Not all was well overnight in Japan, where the yen leapt and the Nikkei 225 plunged 2.8%, the worst single-day loss since August. One reason: Fresh worries over liquidity in China. The one-month interbank rate in the latter country surged the most since June, according to Bloomberg News’ Will Hadfield & Glenys Sim, after central bankers declined to goose markets by injected new funds via money-market operations. Look for weakness in Japan-themed exchange-traded funds such as WisdomTree Japan Hedged Equity ETF (DXJ), which is down 0.8% in premarket trading. It could potentially also be true in the materials sector, where gold, copper and silver futures are declining by anywhere from 0.7% to 2.3% this morning. Materials Select Sector SPDR Fund (XLB) is inactive premarket shortly after 8 a.m. ET.

Associated Press

Transport stocks keep on truckin’, steamin’

Fund watch: Diversify your portfolio by … buying into European stocks? That’s the argument over at Morningstar this morning. Alex Bryan’s ringing endorsement of Vanguard FTSE Europe ETF (VGK) is premised partly on the historic underrepresentation of materials stocks in U.S. indexes, as well as this ETF’s healthy allocation to financials. Result: the FTSE Developed Europe and Russell 1000 Indexes were 90% correlated over the last decade. But if diversification is the aim, wouldn’t you want something less than 90%? Bryan voices a better argument: The ETF is best for those who anticipate a recovery in Europe. “[I]ts holdings are trading at reasonable valuations and may grow faster than their U.S. counterparts as conditions in Europe improve,” he writes.

In the news: Magnetar Capital, known for controversial bets against the property market ahead of the housing crash, becomes an Ohio landlord, report Heather Perlberg and John Gittelsohn of Bloomberg News.

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